Many retirees use Medicaid, a joint federal and state health care program, to cover medical and long-term care costs.

A 2019 Kaiser Family Foundation study found the following:

  • Medicaid is the principal source of long-term care coverage for Americans
  • 62% of nursing home residents use Medicaid
  • Medicaid spending for elderly enrollees receiving acute and long- term care services, on average, is about $13,300 annually.1

The need to turn to Medicaid to help manage long-term health expenses can conflict with the desire to preserve assets and potentially leave a legacy for loved ones.

Explore some strategies before you file 

Consider whether one or more of these strategies fit your situation and needs—and be sensitive to the five-year look-back period most states have (2.5 years in California) whenever you gift or transfer assets2:

1. Use assets to pay off debt and expenses.

Use at-risk assets to pay off bills prior to applying for Medicaid assistance.

2. Buy assets not counted by Medicaid.

Certain assets are excluded from assets Medicaid considers for benefits qualification: home, car, personal effects. For example, you could buy a more expensive home or improve an existing one or buy a new car.

3. Convert assets to income.

Here ’s an example of how to do it: Buy an annuity (most are inappropriate for Medicaid planning; however, some conform to Medicaid law requirements, so choose carefully). Buy non-assignable, non-transferrable annuities that meet the requirement of Deficit Reduction Act of 2005. Have the benefit check made payable to the community spouse as to not impact eligibility.

4. Gift to loved ones.

Give money or assets during your lifetime to those you love. The IRS allows you to give up to $15,000 to a person; any amount over that counts as ordinary income for the recipient. If you’re married, your spouse can also gift up to the same amount to the same recipient(s). (Check out the IRS’s frequently asked questionson gift taxes for more information.)

5. Use an irrevocable trust.

This type of trust is exempt from nursing-home costs, unlike a revocable/living trust. While you can’t receive principal, any interest or dividends are safe from seizure (“Medicaid trust”). One such trust is a Spousal Limited (Lifetime) Access Trust (SLAT).

6. Set up a Life Estate for your real estate.

With this technique , you establish ownership of land (or a home) for the duration of a person’s lifetime. The property can revert to an original owner or pass to an heir, as designated.

7. Have a spouse refuse to care for the one needing health care.

Some states permit something called spousal refusal, or more commonly spousal ref. The well/community spouse denies support for the spouse needing care. As a result, spouse who needs care becomes immediately eligible for Medicaid and medical services.

Helping your heirs as well as yourself 

By using one or more of the outlined strategies, you can make long-term care spending decisions easier for your children or heirs, as well as yourself. Taking these steps allows your loved ones to focus on your health and well-being without any concern about any potential inheritance or other conflict of interest.

1 Source: KFF: 10 Things to Know about Medicaid: Setting the Facts Straight, March 2019

2 Source: American Council on Aging: Understanding Medicaid’s Look-Back Period: Penalties, Exceptions & State Variances, January 21, 2019

This is for informative purposes only and in no event should be construed as a representation by us or as an offer to sell, or solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable, but is not guaranteed by us as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed within. Janney makes no representation that an individual will obtain gains or losses similar to those illustrated. The concepts illustrated here have legal, accounting and tax implications.

Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

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Jack Cintorino

Vice President & Senior Financial Planner

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